SMEs taking more time to settle their debts

SINGAPORE - More small and medium- sized enterprises (SMEs) are becoming tardier in settling their long-term debts, according to data released by business information provider DP Information Group.

Almost a third, or 29 per cent, of bills charged to SMEs remained unpaid 90 days after their due date in Q3 this year. This was a rise of five percentage points from the previous quarter and is the second highest percentage since DP began compiling the data in the first quarter of 2008.

The previous high was during the first quarter of 2010 following the global financial crisis.

According to the report, the quantum of unpaid money has grown every quarter this year, after starting at 18 per cent at the beginning of the year. "The level of unpaid severely delinquent debt is not the result of companies being lazy or forgetful. Many companies are slowing payments as a deliberate tactic to improve their cashflow," said DP Information senior general manager Ong Siew Kim.

However, such a tactic can negatively affect small businesses, Ms Ong warned.

"Waiting to get paid more than 90 days can cripple a small business. The best response SMEs can take is to identify companies that engage in slow payment tactics and take caution when doing business with them."

Although long-term debts are being held out for longer, the study found that other debts are being paid faster.

Making use of the "debts turned cash national average", a tool developed by the DP SME Commercial Credit Bureau to measure the number of days a company takes to pay its creditor once the debt is due, the study found that the number of days to repay debts has dropped from 45 days to 37 days in Q3.

According to Ms Ong, the drop was due to performance improvements across most industry sectors, especially in the area of hire purchasing of office equipment and commercial vehicles, credit co-operatives and leasing portfolios.

The report is based on payments made by more than 120,000 companies in Singapore each quarter.